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India: The third tier


India: The third tier Suman Bery, Director-General Member, Prime Minister s Economic Advisory Council ... panchayati raj institutions and urban local bodies. – PowerPoint PPT presentation

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Title: India: The third tier

India The third tier
  • Suman Bery, Director-General
  • Member, Prime Ministers Economic Advisory Council

GINI Network Workshop Singapore, August 8 2010
  • An independent economic research organisation 53
    years strong
  • Current research areas include
  • - Macro Analysis and Forecasting
  • Household and Consumer Behaviour
  • Consumer Trends
  • Trade Policy Analysis
  • - Infrastructure and Regulation

The Problem
  • Indias constitution formally recognises two
    levels of government union and states.
  • Clear provisions for allocation of revenue,
    expenditure between this first and second tier.
    (Finance Commission State and concurrent lists).
  • 73rd and 74th amendments in 1993 gave official
    political recognition to a third tier
    panchayati raj institutions and urban local

The Problem
  • Legislation national in scope some areas
    excepted. Built in many cases on earlier
  • Implementation left to state governments.
  • Primarily political, but also administrative
    funds, functions, functionaries to be devolved.
  • Three million elected representatives to 250,000
    bodies. Womens reservation.

The Problem
  • Recent concerns social indicators, service
    delivery, welfare programmes search for
    inclusive growth.
  • Also concern to integrate local taxes into
    national goods and services tax (GST).
  • NCAER engaged in major research programme on
    political decentralisation and service delivery,
    supported by IDRC grant.

Revenue Devolution
  • Thirteenth Finance Commission (2010-2014)
    reported end-2009. Accepted in principle.
  • To make recommendations on the measures needed
    to augment the Consolidated Fund of a State to
    supplement the resources of the Panchayats and
    Municipalities in the State on the basis of
    recommendations made by the Finance Commission of
    the State

Revenue Devolution
  • Reflects acute sensitivity on part of states,
    centre not to disturb constitutional balance,
    state autonomy (cf. Brazil 1988).
  • Makes statutory revenue devolution problematic.
    Past FCs resorted to small ad hoc grants in past.
    Not fully drawn.
  • FCXIII transfer share of divisible pool as
    grants-in-aid, above the share of the states,
    through the Union Budget. Award is 1.93 of
    divisible pool.

Revenue Devolution
  • Grant divided into basic and performance-based
    component performance subject to state-level
  • Elements of conditionality improved accounting,
    auditing for LBs prompt transfer of funds
    enabling legislation to expand property-tax base
    service standards for key local services etc.
  • Needs to be complemented by local taxation, user
    charges etc.

Looking Ahead
  • The emergence of rural and urban local bodies as
    key players in bringing about a development
    transformation has been recognised by this
    Commission. Local bodies must be increasingly
    empowered to fulfill their responsibilities, and
    this wouldinvolve a fundamental rethink of the
    Constitutional arrangements regarding
    inter-governmental allocation as well as
    devolution of resources to the third tier.

Expenditure Issues
  • Serious under-provision of local services, partly
    (not entirely) due to financing problems.
  • 52 of rural population has access to rural
    sanitation 70 of urban households to piped
  • SFCs share of rural local bodies in state
    expenditure should rise from 5-6 to 15.

Expenditure Issues
  • Unsatisfactory social indicators have led to a
    massive increase in targeted central programmes
    (CSS-centrally sponsored schemes).
  • Growing agency functions (i.e. tied
    expenditure) of panchayati raj institutions
    (PRIs) in administration of these schemes.
    (2009-10 estimate Rs 95,000 crore), even while
    own resources are grossly inadequate.

Expenditure Issues
  • Severe resistance at both central and state
    government level to expand block grants/untied
    transfers to third tier inadequate capacity
    possible elite capture, dilution of political
    credit (e.g. NREGA).
  • Increasing academic research exploring links
    between devolution, decentralisation and service

Concluding Remarks
  • Attempt to empower third tier politically still
    a work in progress.
  • States jealous, protective of their
    constitutional rights. Reflected in current
    debate on GST.
  • Under-provision of quality local public goods
    reaching crisis proportions. Not just India.
  • Worth comparing experiences across region.

Thank You